European and Japanese stocks rose amid anticipation of interest rates and trade tensions

European stocks rose slightly on Friday, as they headed for weekly gains, supported by a decline in oil prices, although investors remained cautious about developments in the Middle East.

The European Stoxx 600 index rose 0.7 percent to 640.66 points by 07:04 GMT, becoming on track to record its first weekly gain after three consecutive weeks of losses. Most regional stock exchanges also rose during trading.

Oil prices fell after two sessions of gains, and energy sector stocks were among the biggest losers, falling 0.7 percent.

On the other hand, airline shares sensitive to fuel costs rose, with Ryanair and Lufthansa shares rising by more than 2 percent each, while the travel and entertainment sector index rose 1.2 percent.

In another context, a survey showed a decline in consumer confidence in Germany at a pace exceeding expectations before October, in light of the impact of rising energy prices on household income prospects. The German DAX index rose 0.6 percent.

At the level of individual stocks, the shares of the Finnish company “Konikrenz” jumped 5.1 percent, after the industrial equipment manufacturer launched a share buyback program and raised its financial goals.

Japanese stocks continued their gains, on Friday, supported by the rise of artificial intelligence and chip companies and investors’ desire to buy stocks before dividends are due, at a time when government bond yields continued to rise to historic levels with increasing expectations of the Bank of Japan raising interest rates again.

The Nikkei index rose by 1.30 percent to close at 66,364.20 points, recording the fifth consecutive session of gains, so its weekly tally rose by slightly more than 2 percent despite the short trading week due to the holidays. The broader Topix index also rose 1.31 percent to 4,128.59 points.

Daisuke Hashizumi, chief strategist at Daiwa Securities, said that investors bought shares to obtain the right to dividends before the deadline on Monday, but demand for shares of chip companies was also one of the most prominent factors supporting the market.

Banks led the gains among the 33 sectors on the Tokyo Stock Exchange, with the sector index rising 4.08 percent, benefiting from the attractiveness of dividends and high returns. Mitsubishi UFJ Financial Group shares jumped 3.95 percent, and Sumitomo Mitsui Financial Group rose 3.59 percent.

In technology, “Tokyo Electron” rose 4.82 percent and “Advantest” rose 2.84 percent, to constitute the largest source of support for “Nikkei.” Epiden shares, which manufacture components for central processing units, also rose 4.2 percent after jumping 14.57 percent in the previous session.

On the other hand, SoftBank Group shares fell 3.18 percent after Oracle shares fell on Wall Street, following a report about potential delays associated with securing electricity for a huge data center in New Mexico. SoftBank, along with Oracle and OpenAI, participates in the “Stargate” artificial intelligence infrastructure project.

The rise was characterized by relative breadth, as 171 Nikkei component stocks rose, compared to a decline of 51 stocks and the stability of three stocks.

In parallel, the wave of selling government bonds continued. The ten-year bond yield rose 4 basis points to 3.115 percent, a level not recorded since August 1996, while the five-year bond yield rose to a record level of 2.405 percent.

The two-year bond yield, the most sensitive to monetary policy movements, reached 1.92 percent, the highest since April 1995, while the 40-year bond yield rose to 4.255 percent.

These moves come after the Bank of Japan last week raised the interest rate to 1.25 percent, the highest level in 31 years. Barclays Securities Japan analysts said that the weakness of the yen, continued expectations of interest hikes, escalating concerns about financial discipline, and rising external yields may continue to push bond yields higher.

In a remarkable shift within the debt market, data from the Japanese Securities Dealers Association showed that local investors bought government bonds with coupons worth 21.7 trillion yen, about $137 billion, between April and August, equivalent to 89 percent of total purchases for the entire fiscal year 2025.

Domestic demand was focused on medium-term bonds, purchases of which reached 12.7 trillion yen in five months, already exceeding 9.1 trillion yen during the entire previous fiscal year.

In contrast, purchases by foreign investors fell sharply to 2.8 trillion yen, compared to 32.8 trillion yen in fiscal year 2025. Foreigners turned into net sellers of medium-term bonds worth 1.9 trillion yen.

Friday's moves reveal a broad realignment within Japanese markets: AI and dividends are supporting stocks, while higher yields make bonds more attractive to the domestic investor. At the same time, rising borrowing costs, a weak yen, and expectations of further monetary tightening remain major factors determining the direction of Japanese assets over the coming period.

Brussels has told British Prime Minister Andy Burnham that the United Kingdom needs to lift tariffs on Chinese cars and move closer to the European Union's trade policy, in order to avoid its main exports facing potential obstacles under the "Made in Europe" rules that the bloc is developing, according to a report by the Financial Times.

According to the report, which was based on two sources familiar with the discussions, the European Union informed London, in response to its demands for similar treatment for European products, that the best solution lies in Britain joining the European Customs Union, according to Reuters.

The newspaper quoted a European official as saying, “The customs union would solve most of the problems associated with the ‘Made in Europe’ rules, and it would also address the issue of differences in customs duties, which raises concerns about the possibility of Chinese companies circumventing European duties by directing their exports through the United Kingdom.”

This week, Burnham confirmed his intention to demand that Britain be considered a “reliable partner” within the proposed rules of the “Made in the European Union” policy, warning that excluding the United Kingdom could harm the British automobile industry.

The new European policy aims to reduce dependence on Chinese components by giving priority to goods manufactured within Europe, which raises concerns for the British automotive sector, which supplies European supply chains with components and sells its cars in various EU markets.

In a related context, European Commission President Ursula von der Leyen stressed, during her “State of the Union” speech this month, that the European Union will use all available tools to reduce the trade deficit, which she described as “unsustainable” with China.